March 30

Supply Chain Paradigm Shift: Value-Based Purchasing


The Healthcare Financial Management Association tells us that free-standing or multi-hospital payment systems are evolving from fee-for-performance to value-based purchasing, readmission restrictions, and bundled payments. This prediction should also mean a paradigm shift for your supply chain expense management.

Little or No Accountability for Your GPOs or Vendors

When was the last time you checked to see if the savings improvement that was promised or guaranteed by a GPO or vendor actually occurred? Not often enough, according to our extensive multi-year research. Almost daily, our automated savings auditor uncovers for our clients savings that were promised or guaranteed by a GPO or vendor and then reported to their healthcare organization’s senior management that either didn’t happen or increased their expenses.

Promises Are No Longer Good Enough

It is rare that a GPO or vendor takes responsibility for missing a savings or quality target they have estimated in their proposals because they are not held accountable by anybody to do so. However, more and more of your hospital, system, or IDN’s contracts with third parties will be “at risk” agreements. Meaning, if your healthcare organization misses their financial or quality targets in these contracts, they will be held financially accountable and will lose money on these deals. Isn’t it time we, too, hold our vendors to these same standards?

Creating a Structure of Accountability

The first order of business in creating a structure of accountability is to know the reimbursement formulas from your third-parties’ value-based purchasing agreements for your cases, procedures, and tests that have been contracted for. This way, you can determine if your GPOs or vendors are in the ballpark with their offers.

Next, memorialize your GPO or vendor’s offers, promises, and guarantees into your agreements. For instance, if a GPO or vendor is guaranteeing a savings of $22,000 within 12 months in their proposals, show it as a guarantee and list the penalty (e.g., credit for missed savings within 45 days of end of year) based on their promised or guaranteed savings.

Finally, track, trend and analyze the utilization (in-use, not price) of the product, service, or technology under contract, at least quarterly, to determine if the GPO or vendor has met their guarantee. Without this last step, you have no basis for holding your GPOs or vendors accountable for their offers, promises, and guarantees. This is the paradigm shift that is mission critical for your healthcare organization to survive and thrive in a new value-based purchasing world.

P.S. To learn more, just e-mail me at [email protected] for The Ultimate “Closed-Loop” Savings Validation Guidebook in a digital format to help you get ready for this paradigm shift.

Below are some similar articles that you may find interesting.

5 Questions To Answer When Formulating A Supply Utilization Management Strategy

Stop Losing Sleep Searching For Desperately Needed Supply Expense Savings

4 Predictions That Will Directly Affect Your Supply Chain In 2021

Request Demo of SVAH’s VA and Utilization Tools


bundled payments, fee-for-performance, GPO, healthcare, healthcare organization, hospitals, savings auditor, savings validation, supply chain, supply chain expense management, value-based purchasing

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